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Weekly Global Update for February 25, 2015

February “Flash” PMI Leading Indicators (Charts 1-4)

Market Economics released Flash PMI leading indicators for the USA, the eurozone, Germany, France and Japan. China’s was delayed until February 25th (perhaps due to the Lunar New Year holidays).

Comments by Chris Williamson, Chief Economist at Markit:

USA

Factory output growth ticked higher for a second successive month in February, suggesting the goods-producing sector is on course to make a robust contribution to the economy in the first quarter.

The production upturn occurred despite widespread delivery delays caused by heavy snowfall and port strikes, which may have also been a factor behind the near- stagnation of exports, suggesting the underlying picture may have been one of slightly stronger growth.

However, the rate of growth remains well down on last year’s peaks, and a slowing of new orders growth to the weakest for just over a year looks to have caused employers to take a more cautious approach to hiring. Worries over Russia and the eurozone also continue to dampen risk appetite.

The survey therefore adds to the sense that, while still expanding at a solid pace, the U.S. economy has entered a slower growth phase. Policymakers, juggling with the decision as to when the economy can start to withstand higher interest rates, will at least be reassured that lower manufacturing costs, now falling at the fastest rate since mid-2012, should help drive inflation down further in coming months and allow policy to be kept looser for longer if needed.

Eurozone

February’s PMI surveys paint an upbeat picture of improving eurozone economic health. Undeterred by the ongoing Greek debt crisis, economic growth is gathering momentum and looks set to gain further traction in coming months. The economy is on course to grow by at least 0.3% in the first quarter, assuming March doesn’t disappoint.

Even more encouraging is the faster rate of job creation reported during the month. Employment is now rising at the steepest rate since 2011 as employers become increasingly confident in the outlook and eager to take on staff to meet rising demand.

With the ECB’s quantitative easing ‘bazooka’ due to start in March, business optimism has been boosted to its highest for three-and-a-half years.

Growth is looking lop-sided, however, and very much dependent on the services economy where lower prices are fuelling growth, especially in consumer-facing sectors. The weakness of the manufacturing economy remains a major concern.

A key development this month is that France is no longer languishing in stagnation. The region’s second-largest economy is now seeing the strongest growth since mid-2011, with French consumers apparently awakened by lower prices.

Japan (by Amy Brownbill, Economist at Markit)

The latest data signaled an improvement in operating conditions in the Japanese manufacturing sector. Despite a growth slowdown in incoming new orders, manufacturing production growth was solid and unchanged from the previous month. Meanwhile, new orders from international markets increased at the fastest rate since October 2014-driven by the weaker yen.

However, employment growth weakened for the second successive month in February despite reports of an improving economy.

Japan Update

JEITA just released Japanese domestic electronic equipment, component and device production by product type for December.

December 2014 Japanese electronic equipment production declined 7.5% compared to December 2013. However it increased 24% sequentially from November 2014. For total 2014 it declined 6.3% compared to total 2013 (Charts 5 & 6).

North America-based manufacturers of semiconductor equipment posted $1.31 billion in orders worldwide in January 2015 (3-month average basis) and a book-to-bill ratio of 1.03, according to SEMI.

The 3-month average of worldwide bookings in January 2015 was $1.31 billion, 4.9% lower than December 2014 and 2.6% higher than the January 2014.

The 3-month average of worldwide billings in January 2015 was $1.28 billion, 8.6% lower than December 2014 and 3.5% higher than the January 2014.

"2014 was a strong growth year for the semiconductor equipment industry, and both bookings and billings at the start of this year are comparable to the early 2014 figures," said SEMI president and CEO Denny McGuirk. "Given the positive outlook for the semiconductor industry in 2015 and based on current capex announcements, we expect the equipment market to continue to grow this year.”

According to the International Data Corporation the overall certified workstation market maintained its growth momentum in the fourth quarter of 2014 (4Q’14).

Worldwide shipments were up 8.8% year-over-year in 4Q’14 to 946,089 units making this the seventh consecutive quarter of positive growth in a competitive market driven by traditional desktop workstations. For the full year 2014, total worldwide shipments improved significantly to 3.7 million units and 8.9% year-over-year growth compared to annual growth of 2.9% in 2013.

Walt D. Custer

Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.

Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.

He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website.